Bulletin

Public transit Catch-22

More turn to trains and buses even as officials struggle with funding

By

StephanieI. Cohen

PRINCETON, N.J. (MarketWatch) -- Higher fuel prices over the past two years combined with household fiscal concerns are leading record numbers of Americans to ditch their cars and hop on trains, subways and buses each day, a pattern that if sustained would help the U.S. to reduce fuel consumption and cut tailpipe emissions.

But transit agencies are facing a classic Catch-22: Just as public transit is seeing record-breaking levels of users and more cars sitting in the suburbs, state and local governments are struggling to find dollars for transit improvements and expansions needed to bring more riders onboard.

"Throughout the state of Georgia and across the nation, transit providers are stretching every available dollar to meet rapidly increasing demand," Beverly Scott, general manager of the Metropolitan Atlanta Rapid Transit Authority told congressional lawmakers last week.

"Numerous projects on the drawing boards throughout my state are unfunded, simply because of a lack of available funds at the state and local levels for transit investment," she added.

Public transit in the Atlanta metropolitan area served over 14 million customers in September, a 13.3% increase in total ridership over September 2007, according to officials.

The pattern is similar in many regions of the U.S. In the second quarter of 2008 commuter rail ridership showed a double-digit jump in cities throughout California, Maine, Florida, Pennsylvania and Florida, compared with the same quarter a year ago. Commuter rail service moves commuters between urban and surrounding suburban areas.

Amtrak reported an 11% jump in users last year.

In 2007, 10.3 billion trips were taken on public transportation, the highest ridership number in 50 years, according to the House Transportation and Infrastructure Committee. Total figures at the end of 2008 are expected to set a new record.

The switch for most drivers is being prompted by a desire to cut transportation costs. On average, a transit user saves more than $9,500 a year by taking public transportation instead of driving, according to a 2008 report by the American Public Transportation Association.

More riders, more costs

Yet as oil prices surged over the past year, the number of miles drivers logging on U.S. roadways steadily dropped while public transportation trips simultaneously rose, according to analysts.

Waves of new riders can create a tailwind when systems that are already functioning at full capacity become strained and revenue that comes from riders doesn't actually cover operating and fuel costs, as is the case in many areas of the country today. Over one-third of the urban rail stations in the country are considered "substandard" by the Department of Transportation.

Cities all over the country are in need of transit dollars. The Muncie, Ind., transit system needs $2.1 million to buy four replacement hybrid buses. The Denver, Colorado Regional Transportation District, which witnessed a 13 % jump in riders last year, is looking for $235 million to finance transit station improvements and expand service, while New York City needs $680 million to revitalize stations and improve rail lines.

But instead of expanding service, a recent survey showed that 35% of public transportation providers have been forced to cut or plan to cut the level of passenger service they provide in spite of the growing demand, according to the American Public Transportation Association.

The culprits? Local governments are grappling with budget deficits, shrinking contributions form Washington for transportation projects, and increased operating costs for transit services.

Add to this the fact that public transit operators run into the same fuel costs problems that drive commuters to rails and buses in the first place.

Clarence Marsella, the general manager of the Denver Regional Transportation District, noted in a recent presentation that more riders equal more costs and that small increases in the price of diesel fuel can lead to a $100,000 jump in annual operating costs for the Denver transit system.

Fuel costs for the Denver system for 2009 are expected to be roughly double what they were in 2007, while overall ridership increased by 10% over the past year, according to Marsella.

Going private

At the same time, expanding public transportation -- adding more service to more locations -- requires money that is becoming increasingly hard to find. This has led some local officials from San Francisco to Philadelphia to seek out private dollars -- from private equity firms and investment banks -- to cover the cost of capital investments.

Current government estimates indicate the U.S. will need to pump as much as $60 billion into public transportation and infrastructure projects in the coming decades. According to the Department of Transportation, $21.8 billion is needed to maintain and improve the country's transit systems annually.

The National Council for Public Private Partnerships has been holding presentations across the country to educate officials on how to tap private sector capital to fund public transportation projects, and shift the construction costs and operational risks to the private sector.

Private funding for public projects isn't new and the number of projects using private funds seems to be growing. In late September, John Hancock Life Insurance Co. and two other partners announced they had won a $2.5 billion, 99-year lease to operate and develop Chicago Midway Airport. If completed, the airport would be the first privatized major airport in the U.S. In April, Los Angeles Mayor Antonio Villaraigosa announced he would pursue private partnerships to fund transit projects.

But some Washington lawmakers remain uneasy with private control over public assets. This week, Rep. James Oberstar, D-Minn., and Rep. John Mica, R-Fla., sent a letter to Transportation Secretary Mary Peters noting that the current financial crisis on Wall Street is leading to more and more so-called public-private partnerships that lack "adequate transparency" to protect the public's interest.

"We are particularly concerned about efforts by private investors to exploit the financial crisis to place a number of the nation's transit agencies at risk of default and financial collapse," the letter said.

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